ACCOUNTS RECEIVABLE AND OTHER FINANCIAL ASSETS (Notes)

3 Months Ended

Mar. 31, 2021

ACCOUNTS RECEIVABLE AND OTHER FINANCIAL ASSETS

Accounts receivable in the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 includes receivables from customers of $468 million and $510 million, respectively, and receivables from marketing affiliates of $28 million and $32 million, respectively. The remaining balance principally relates to receivables from third-party payment processors. The Company’s receivables are short-term in nature. In addition, the Company had prepayments to certain

customers of $95 million and $107 million included in "Prepaid expenses, net," and $38 million and $45 million included in "Other assets, net" in the Consolidated Balance Sheets at March 31, 2021 and December 31, 2020, respectively. The amounts mentioned above are stated on a gross basis, before deducting the allowance for expected credit losses.

The Company has identified the relevant risk characteristics, of its customers and the related receivables and prepayments, which include the following: size, type (alternative accommodations vs. hotels) or geographic location of the customer, or a combination of these characteristics. Receivables with similar risk characteristics have been grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions, supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors that influence the expected credit loss analysis include customer demographics, payment terms offered in the normal course of business to customers, the nature of competition, and industry-specific factors that could impact the Company's receivables. Additionally, external data and macroeconomic factors are considered. This is assessed at each quarter based on the Company’s specific facts and circumstances.

In 2020, due to the impact of the COVID-19 pandemic (see Note 1), given the severe downturn in the global travel industry and the financial difficulties faced by many of the Company’s travel service provider and restaurant customers and marketing affiliates, the Company increased its provision for expected credit losses on receivables from and prepayments to its customers and marketing affiliates. Significant judgments and assumptions are required to estimate the allowance for expected credit losses and such assumptions may change in future periods, particularly the assumptions related to the impact of the COVID-19 pandemic on the business prospects and financial condition of customers and marketing affiliates and the Company’s ability to collect the receivable or recover the prepayment. In 2021, based on its review of recent historical credit loss experience and stability in the economic conditions in certain markets, the Company has revised its estimates of expected credit losses.

The following table summarizes the activity of the allowance for expected credit losses on receivables (in millions):


	Three Months Ended March 31,
	2021		2020
Balance, beginning of year	$	166	$	49
Provision charged to earnings	(12)		199
Write-offs and adjustments	(57)		(1)
Foreign currency translation adjustments	(3)		(2)
Balance, end of period	$	94	$	245

The allowance for expected credit losses on receivables includes a portion of the amounts related to refunds paid or payable to certain travelers without a corresponding estimated expected recovery from the travel service providers, primarily due to the impact of the COVID-19 pandemic (see Note 2). For the three months ended March 31, 2020, the Company recorded a reduction in revenue of $48 million for such refunds, which is included in "Provision charged to earnings" in the table above.

In addition to the allowance for expected credit losses on receivables, the Company recorded an allowance for expected credit losses on prepayments to certain customers, which are included in "Prepaid expenses, net" and "Other assets, net" in the Consolidated Balance Sheets. The following table summarizes the activity of the allowance for expected credit losses on prepayments to customers (in millions):


	Three Months Ended March 31,
	2021		2020
Balance, beginning of year	$	55	$	6
Provision charged to expense	2		48
Write-offs and adjustments	(1)		—

Balance, end of period	$	56	$	54